American vs European Exercise

Discussion in 'Options' started by u21c3f6, Feb 24, 2007.

  1. u21c3f6


    I have been reading about the difference between American and European exercise but I am not clear on the risk.

    What is the risk of doing a debit calendar spread on the OEX because it has an American exercise?

    Thank you.
  2. Someone could exercise the short leg before expiration.
  3. hopback


    You are delivering cash not stock, so the risk is not limited to the cost of the spread.

    Say the OEX pops 10 points one day, you wake up the following morning to find that you have been assigned on your short call leg and the OEX open 10 points lower.

    Your long call leg is trading lower than yesterday and if you exercise you will get the intrinsic based on that days settlement.